These Case Studies Will Show You The Benefit of Debt Arrangement SchemesMarch 21, 2018
In one case, two solicitors stood to lose their family homes as a result of significant personal guarantees they had provided in relation to their law firm. In the other, two business owners had personally borrowed large sums, which they then ploughed into their ailing business to try and save it. They had also signed significant personal guarantees over the company’s debts. Ultimately, when the company failed, they were facing bankruptcy as they could not immediately repay these debts.
In both cases, we were able to successfully avoid sequestration (bankruptcy), protect their assets and satisfy their creditors’ demands.
Due to the interest my first article generated, I thought I would look at two more cases where we used a DAS to protect our clients and secure a positive outcome for both debtor and creditor.
I hope these two extra case studies help you understand the inner workings of a DAS a bit more and showcase the good that they can do.
If you missed my first article and are unsure of what a DAS is, here is a quick refresher:
DAS is a scheme run by the Government to help debtors to pay their debts by giving them more time to pay without threat of court action from their creditors. It also freezes interest, fees and charges on their debts. (More info here.)
And as always, if you are struggling with debt and are investigating potential debt management tools, please get in touch with our team as soon as you can. Our initial advice is completely free and will help you identify the best course of action for your personal situation.
Case Study #1 — Consultant’s Tax Affair Mess
We always tell people that the sooner they contact us, the better the chance we can achieve a positive outcome.
However, this next case study demonstrates how, with the right experience and expertise, we managed to produce a positive result in a very short timeframe.
In this case, our client, a business consultant operating as a sole trader, had gotten himself into a serious and substantial mess with his tax affairs.
It was so late in the day that HMRC had already commenced court action to have his estate sequestrated. Indeed, the court action was already well advanced and the Sheriff had granted at least two continuations. Someone had already described the situation as him having already been kicked out of the last chance saloon.
As often happens, our client's book-keeping and tax affairs were in a mess. HMRC had assessed a tax liability that our client felt was excessive but, without up-to-date records, he was in no position to dispute it.
With the sequestration action already having been continued this case would likely have resulted in bankruptcy for our client.
When our client approached us, he had just appointed a new accountant in an attempt to quickly bring his tax affairs up to date. We worked closely with his accountant to quickly and efficiently update his tax affairs and produce a realistic DAS proposal.
Unfortunately, HMRC objected to the DAS, preferring to proceed with their petition for sequestration.
In response to the objection, we went to the Accountant in Bankruptcy (AiB) and asked them to intervene. After considering our DAS proposal and obtaining the answers to their further questions, the AiB overruled HMRC’s objection following their fair and reasonable test and the DAS was approved.
The DAS protected our client from sequestration and allowed him to pay back only what he could afford each month until his debt had been repaid.
We are tremendously proud of this case because, despite becoming involved at such a late and seemingly unsalvageable stage, we were able to save our client from sequestration.
Additionally, with the DAS we designed, HMRC will recover significantly more of their debt than if they had forced our client into sequestration, which is the best outcome possible for all parties involved.
Case Study #2 — Fast Food Restaurant
Fluctuating seasonal trade always brings a certain element of risk. Can you make enough during the busy months to tide you over through the subsequent quiet period? Keep that in mind while I discuss this second case study.
Our clients opened a fast food restaurant next to an area immensely popular with students. The restaurant, run as a partnership rather than a limited company, enjoyed a huge seasonal boom during the academic semester when the area was busy.
However, when the students left during the summer months, trade plummeted and the business began to struggle.
When our clients first approached us, they were struggling to manage significant business debts, including a substantial tax bill owed to HMRC.
Not only that but they were about to enter the quiet summer season and feared they would not be able to continue trading. Insolvency, in their minds, was inevitable.
As I recently wrote about in a separate article, HMRC is under a lot of pressure to recover VAT and other taxes from business. So if your business falls behind on its payments, you should expect HMRC to come knocking sooner rather than later.
In this particular case, our clients recognised their problems at a relatively early stage and sought our advice and help.
Without intervention, given the level of debts and the fact the business was about to enter their quiet season, HMRC or another of the restaurant's creditors would very likely have taken legal action.
Since the business itself (a fast food restaurant operating from leased premises) was insolvent and the business owners operated it as an unlimited partnership, the partners would likely have lost their family homes as a result of any legal action.
Thankfully, the pair approached 180 Advisory Solutions to ask if we could help.
Business DAS Outcome
As the business was run as a partnership, it required a Business DAS rather than a personal DAS. A Business DAS requires the advice and assistance of a licenced insolvency practitioner who is also FCA authorised, both of which we are.
Very early on we realised there was a serious communication problem between the partners, their accountant and HMRC. No party fully understood the position and objectives of any other, which undermined the whole process.
We worked closely with all involved parties to improve the standard of communication, which helped HMRC understand the reasons behind the non-payment of tax.
We then designed a Business DAS, which proposed a reasonable repayment plan for the partners while safeguarding their homes.
Despite some initial resistance from HMRC, the Business DAS was agreed by all creditors and is currently ongoing. The business continues to trade, our clients were able to protect their homes and their creditors will eventually recover their full debt.
Could a DAS Help You?
If you have large personal debts and are under pressure from your creditors, a DAS may be able to help.
As I’ve mentioned above, a DAS will freeze all interest, fees and charges related to your debts and give you an extended time to repay what you owe. It will also protect you from hassle or threat of legal action from your creditors, which is immensely reassuring.
To apply for a DAS you must use an approved money adviser, who either works through an approved state organisation like a Citizens’ Advice Bureau or an FCA authorised private sector organisation like 180 Advisory Solutions.
Please contact our team for a free and confidential discussion of your circumstances in more detail and see how we can help.